Blog

New Home Construction Up in April

A lack of inventory has been plaguing the housing market for some time now. Fortunately, builders are rising to the challenge of supplying demand for new homes. After a weak start to the construction season, new construction experienced a healthy rise through April. Last month, according to the Commerce Department, housing starts jumped up by 6.6%. This puts them at a seasonally adjusted annual rate of about 1.17 million houses. Applications for permits to construct new homes went up by 3.6%.

Unfortunately, the news is not as good as it could be. There is still a ways to go before the market fully compensates for the 9.4% drop in March. Meanwhile, through groundbreakings are beating last year’s rate, not much of this is going on here in the Lynnwood area. Starts were up by 22.2% in the Midwest and 14.1% in the South, but they actually declined by 10% in the West and 7.6% in the Northeast.

National builder sentiment for May has held at 58 for the fourth month in a row, telling us that we can likely expect further strong construction activity in the future.

Rates Remain Low, but Washington Home Prices Continue to Rise

As we entered May, mortgage rates inched slightly lower. This is happening in spite of activity in the bond markets that generally drive mortgage rates. In part, this is probably due to the fact that lenders hadn’t fully adjusted their rate sheets to reflect last Friday’s gains. We may therefore expect to see slightly higher rates as the week continues. It would seem that the market is fairly stable, though, and we can likely look forward to another month of low interest rates.

Meanwhile, though mortgage rates remain attractively low across the country, some areas are experiencing such great increases in home prices that homebuyers are actually paying more each month than they were back in the end of 2015. The problem has been most pronounced here in Washington, where the monthly principal and interest payments are averaging almost $15 higher for median-range homes, compared to December. Oregon and Colorado have been experiencing similar problems, while the rest of the country has been enjoying an average monthly payment decrease of about $20.

Favorable Rates Bring About Lows in Delinquency

Black Knight Financial Services has good news for the US economy. According to their assessment of distressed properties, the national delinquency rate has dropped down to a level that the nation hasn’t seen in fifteen years. Meanwhile, the serious delinquency rate, representing the number of mortgages that are ninety days or more past due, is lower than it has been since March of 2007. Even loans that are only thirty days or more past due dropped to 4.08% of total mortgage loans in March, representing a decrease of 8.37% from the month before and 12.42% from March of 2015.

It would seem that the recent decline in interest rates is the driving force behind much of this activity. The company reports that low rates have brought about a significant surge in prepayments. The Single Monthly Mortality, or SMM rate, was 1.3% in March, representing an increase of 46% over February. This rate, which gives us the percentage of the principal number of mortgages that were prepaid in the month, is generally a reliable indicator of refinance activity.

The Construction Season Gets Off to a Weak Start

March is the beginning of the construction season for builders in much of the country. Unfortunately, as we look back at this last month, we’re not getting a very positive outlook on this year’s residential construction.

According to the data recently released by the U.S. Census Bureau and the Department of Housing and Urban Development, permits and housing starts fell from February levels, far below what analysts were anticipating. Permits for the month came out to a seasonally adjusted annual rate of 1,086,000, which comes in 7.7% shy of the February estimate. This also represents the fourth consecutive month of declines in permits. Here in the West, there was a decline in permitting of 15.4% over the previous month, and 6.1% over March of 2015.

There was, however, an improvement in housing completions last month. This figure came in at a seasonally adjusted annual rate of 1,061,000, representing a 3.5% improvement over February and a 31.6% increase over March of 2015.

Mortgage Rates See Strongest Friday in Over a Year

Last Friday didn’t see much in the way of improvement in terms of mortgage rates. In fact, some lenders were quoting higher rates over Thursday. All the same, the average rate remained fairly low, representing the lowest rate that many lenders have been quoting for the end of the week in almost three years.

With rates as strong as they are, it’s not a bad idea to lock in. However, it would definitely seem that we are experiencing a downward trend, and it’s not overly optimistic to expect to see even better rates in the future. Trends can change at any moment, but as long as you are prepared to lock in at the first sign of a reversal, you should be in pretty good shape.

As far as this week goes, you can likely not expect much movement early on. Wednesday is the day to look forward to, with the Retail Sales and Producer Prices data released in the morning and the 10-Year Treasury auction in the afternoon. After that, Thursday will bring us the 30-Year bond auction and the CPI release.

Home Sales Still on the Rise, but Year-Over-Year Gains Slowing Down

According to the National Association of Realtors, its Pending Home Sales Index went up by 3.5% in February. This soundly reverses the disappointing decline reported last month and puts current rates of home sales up to its highest levels in seven months. These figures are based only on signed home purchase contracts, but such contracts generally result in transactions closing within about two months and are a fairly reliable wan to predict upcoming home sales.

The bad news is that the gains in home sales seem to be shrinking. Compared to February of 2015, it would appear that sales are up by only 0.7%. Though year-over-year sales have been up for over the last eighteen months, these most recent figures represent the smallest annual gain.

A silver lining in these weakening sales is that we are looking at a similar slow down in price appreciation. Home prices were up by 4.4% last month. Though this is still outpacing wage growth and doing little to counteract rising mortgage rates, it is far more favorable than the 8.1% increase experienced in January.

High Rents Boost Home Sales Despite Low Affordability

It is projected that the economy will continue to grow throughout the rest of 2016, bringing increased household income and only small increases in mortgage rates. Unfortunately, this may not be enough to combat the declining affordability of homes. Low inventory continues to plague the market, driving up prices and inciting bidding wars on desirable units throughout the country.

Meanwhile, though the Millennial generation has thus far been slow to embrace homeownership, increasing home values have been inspiring young professionals to make the transition. As rents go up faster than income, it is getting more and more viable to take on a mortgage as an alternative. However, with over 60% of millennials working full-time earning less than the national median income of $46,480, this remains a dream that will remain frustrated for many would-be homeowners for a while yet.

The sustained demand for apartments has brought about an influx of apartment inventory. An increased number of units are added every year, more than sixty percent of which are rented within three months of completion.

Mortgage Rates Improve Slightly Before Fed Announcement

Mortgage rates inched lower going into the third week of March as bonds leveled off. Unfortunately, this improvement was not enough to fully reverse the recent upward trend. Rates last Friday were at their highest levels the market had seen since late January, and we’re currently not much better off.

The question right now is whether this downward movement represents a new trend, or a one-time anomaly. Though it is possible that we will continue to see more improvement in the short term, it is also possible that this recent improvement is due to financial markets calming down on the week of the big Federal Reserve statement coming up on Wednesday. Once this announcement is made, we can expect a big reaction from the financial markets. If the economic outlook is positive enough, we could easily see mortgage rates jump significantly higher by the end of the week. If the data is weak, mortgage rates may ease a bit. There’s no way to anticipate in which direction they will move at this point.

Strong Jobs Report Fuels Upward Trend in Mortgage Rates

The recent jobs report came out significantly stronger than was initially expected. February experienced a payroll growth of 242k, compared to the projected 190k. Meanwhile, the national unemployment rate held at 4.9%; considering that there are more people entering the workforce, this is a favorable figure. All in all, it would seem that the economy is doing better than was indicated by the popular opinions of the past two months.

Since this employment data is one of the most important factors influencing the bond markets underlying mortgage rates, good news in the jobs report often equals bad news in the mortgage market. It is therefore that, on the fourth, we observed a moderate jump in rates. However, relative to the recent upward movement that the market has been experiencing, the move wasn’t terribly dramatic. In fact, it’s the steady upward momentum of mortgage rates that may have prevented a sharper reaction to the recent jobs report.

Many experts are surprised that rates are not higher than they are right now, and are projecting further increases in the near future. If you are looking to secure a new mortgage loan, the good money is on locking into current rates.

Foreclosures Up for Much of the Nation

Looking back at January, we can see that the rate of foreclosures was down on a month-over-month basis. Unfortunately, completed foreclosures showed a significant upturn on an annual basis.

According to RealtyTrac, there was a total of 95,186 filings in January. This includes foreclosure starts, notices of default, and completed foreclosures. This number represents the lowest figure since July of 2006, as well as an 8% decrease from December and an 11% decrease from January of 2015. Further, completed foreclosures alone were down by 26% from December, but up 32% from January of 2015.

Some states showed worse figures than the national average. Twelve states and the District of Columbia experienced an increase in foreclosure starts, with Oklahoma leading the nation with a whopping 289% increase. Meanwhile, completed foreclosures were up in 34 states and the District of Columbia; New York saw the worst increase with 263%, followed by Texas, New Jersey, Georgia, and Maryland.